Document templates are text or spreadsheet documents with auto data tags. You can fetch data from all the linked items. For example a contact in the address book has links to a project and a companies. When you create a document you can use the contact, project and company data.
You can create document templates for OpenOffice.Org and Microsoft Office 2007 (You can use older versions but then you must install the compatibility pack) and up in Group-Office.
To create a template use OpenOffice.Org or Microsoft office to create a new document (in .docx format) and upload it at:
Address book -> Administration -> Templates -> Add document template
The template variables you can use are the same as for e-mail templates.